As the holiday season approaches, shoppers are searching for ways to spread out the cost of gift-giving. Two popular options — Layaway vs. BNPL (Buy Now, Pay Later) — allow consumers to purchase items without paying the full price upfront. While these payment plans may seem like a lifesaver, they come with risks, hidden fees, and potential pitfalls that can derail your holiday budget.
Before you jump into these tempting offers from services like Klarna, Affirm, and Afterpay, let’s break down what you need to know to avoid falling into a financial trap.
Contents
What Is Layaway and How Does It Work?
Layaway is a traditional payment method where a retailer holds an item for you until you’ve made all the installment payments.
- You pay a small deposit upfront.
- Payments are made over a set period, interest-free.
- Once paid in full, the item is yours to take home.
Retailers like Walmart and local stores often offer holiday layaway programs to help customers manage larger purchases.
Pitfall: If you fail to complete the payments, you may lose the item and the money you’ve already paid due to non-refundable service fees.
What Is Buy Now, Pay Later (BNPL)?
BNPL services such as Klarna, Affirm, and Afterpay allow you to split your purchase into installments — typically four payments spread over six weeks — with little or no interest. Unlike layaway, you receive your purchase immediately.
- Klarna: Offers interest-free payments but charges late fees if a payment is missed.
- Affirm: Provides monthly payments with interest rates ranging from 0% to 30%, depending on your credit.
- Afterpay: Splits payments into four interest-free installments but imposes late fees for missed payments.
While BNPL seems convenient, the risks can outweigh the benefits if you’re not careful.
The Hidden Costs of Layaway
- Non-Refundable Fees
Many retailers charge service fees for layaway plans, and these fees are non-refundable even if you cancel the purchase. Additionally, some stores charge restocking fees if you don’t complete payments. - Missed Payments Penalties
If you miss a payment, you may lose your layaway plan altogether, forfeiting any money already paid. This can leave you scrambling for gifts at the last minute. - Limited Availability
Layaway doesn’t guarantee availability. If a store runs out of stock or changes its policies, your payment plan may fall apart.
The Risks of BNPL (Klarna, Affirm, Afterpay)
- Late Fees and High Interest Rates
- Klarna and Afterpay charge fees for missed payments, which can add up quickly.
- Affirm’s “0% interest” can jump to 30% APR if you opt for longer payment terms or miss the promotional period.
- Temptation to Overspend
BNPL makes it easy to lose track of spending. Breaking a purchase into small payments tempts shoppers to buy more than they can afford. A few $20 payments can quickly turn into hundreds of dollars in debt. - Impact on Credit Scores
- Klarna and Afterpay don’t always report payments to credit bureaus, but missed payments can negatively impact your credit score.
- Affirm sometimes conducts hard credit checks during approval, which can lower your score temporarily.
- Confusing Terms and Fine Print
- The terms of BNPL plans vary widely. For example, Klarna might advertise “interest-free” payments but tack on penalties for missed payments.
- Many shoppers don’t realize that failure to pay can send their debt to collections, further damaging their finances.
Layaway vs. BNPL: Which Is Riskier?
Both layaway and BNPL offer advantages but come with risks that holiday shoppers need to weigh carefully:
| Feature | Layaway | BNPL (Klarna, Affirm, Afterpay) |
|---|---|---|
| Fees | Service/restocking fees | Late fees, possible interest rates |
| Payment Timing | Before receiving the item | After receiving the item |
| Interest | None | Potentially high with Affirm |
| Credit Impact | None | Possible with late payments or credit checks |
| Spending Behavior | Encourages planned spending | Encourages overspending |
Verdict: While layaway ensures a controlled payment plan, BNPL offers immediate gratification but can easily lead to overspending and late fees.
Tips to Avoid Holiday Payment Pitfalls
- Read the Fine Print
Always review fees, interest rates, and repayment terms for BNPL services like Klarna, Affirm, and Afterpay. Don’t assume “interest-free” means risk-free. - Stick to a Budget
Plan your holiday spending in advance and resist the temptation to overextend your finances. - Make Payments on Time
Automate payments for BNPL plans to avoid late fees and protect your credit score. - Save First, Spend Later
Instead of relying on payment plans, consider saving a set amount each month leading up to the holidays. You’ll avoid fees and the stress of post-holiday debt. - Explore Alternatives
- Use credit cards with rewards or cashback.
- Look for holiday sales, coupons, and store discounts.
- Gift experiences or homemade gifts to stay within budget.
Layaway vs. BNPL Conclusion
While layaway and Buy Now, Pay Later options like Klarna, Affirm, and Afterpay can make holiday shopping feel more manageable, they come with hidden costs and risks. By understanding the fine print and sticking to a budget, you can enjoy a financially stress-free holiday season without sacrificing your peace of mind.
This year, give yourself the gift of financial control — because the best holiday memories don’t come with hidden fees.
